APY Range Calculator
As more financial institutions begin to offer “reward”-type accounts, it’s important to ensure the annual percentage yield (APY) is being accurately disclosed.
The APY calculation requirements can be found in Appendix A of Regulation DD (Truth in Savings). Part I addresses the APY for account disclosures and advertising purposes and in this case, we want to look at Part I, Letter D, “Tiered-Rate Accounts (Different Rates Apply to Specified Balance Levels)”. It provides two options for calculating the APY for a tiered-rate account:
Option A:
Under this method, an institution pays on the full balance in the account the stated interest rate that corresponds to the applicable deposit tier.
Option B:
Under this method, an institution pays the stated interest rate only on that portion of the balance within the specified tier.
Under Option A you will only disclose a single APY for each tier (for example, .75% APY). Under Option B; however, you must disclose an APY range that shows the lowest and highest APY for each tier (other than the first tier). For example, .75%-.63% APY.
We’ve come up with a calculator to help! We’d still recommend that if your software can do the calculations, you let it. If nothing else, this is a good tool to double check the information it kicks out. All you need to do is enter the compounding frequency, as well as the balance requirements and interest rate for each tier and the tool will do the rest! Please note: this APY Range Calculator only works if you are compounding interest.
Be sure to check out the calculator in the FREE Deposit Resources on our website and listen to Deb Irving explain how to use it.
You can also read more about this requirement in the March edition of Banking on BCC.
Find all your Deposit Operations Free Resources here!
Published
2021/02/26
David Dickinson
David’s banking career began as a field examiner for the FDIC in 1990. He later became a Compliance Officer and Loan Officer for a small bank. In 1993, he established Banker’s Compliance Consulting. Along with his amazingly talented Team, he has written numerous compliance articles for prestigious banking publications and has developed compliance seminars that Banker’s Compliance Consulting produces.
He is an expert in compliance regulations. He is also a motivational speaker and innovative educator. His quick wit and sense of humor transforms the usually tiring topic of compliance into an enjoyable educational experience. David is on the faculty of the American Bankers Association National Compliance Schools and has served on the faculty of the Center for Financial Training for many years. He also is a frequent speaker at the ABA’s Regulatory Compliance Conference. He is also a trainer for hundreds of webinars, is a Certified Regulatory Compliance Manager (CRCM) and has been a BankersOnline Guru for many years. The American Bankers Association honored David with their Distinguished Service Award in 2016.
David and his wife Karen have three adult children, four grandchildren (none of whom live at home!) and two cats (of which Dave is allergic … the cats, not the children!). They recently moved to an acreage outside of Lincoln, Nebraska where he gets to play with his tractor. When possible David can be found fishing, making sawdust in his shop, or playing the guitar and piano. He also enjoys leading worship at his church.